Rental property owners
Accounting for Chicago Rental Property Owners
Books per building, depreciation and contractor reporting.
Common mistakes in this industry
- An owner-occupied two-flat splits every shared cost by square footage or by unit, and the split has to stay consistent for as long as the building is held.
- A roof is a capital improvement depreciated over decades. A repair to the same roof is deductible now. Coding one as the other is the most common error on a landlord return.
- Chicago requires interest paid on security deposits held under the Residential Landlord and Tenant Ordinance, and the rate is set each year.
- Depreciation is recaptured on sale whether or not it was ever claimed, so skipping it saves nothing and costs the deduction.
Rental property
Frequently asked questions
I live in one unit of my two-flat. How does it work?
The rented portion is reported as rental activity and the portion you occupy is personal. Shared costs such as the roof, the boiler and the water bill are split on a reasonable basis, usually square footage or unit count. Mortgage interest and property tax split the same way, with your share going to your personal deductions.
Do I need to report what I pay my handyman?
When the rental activity rises to a trade or business, yes, for anyone unincorporated paid above the reporting threshold in the year. Collect their tax details before you pay the first invoice, since chasing them in January rarely works.
Do rental losses come off my other income?
Rental losses are passive and limited. An owner actively participating with income below the phase-out deducts up to $25,000 a year, and anything above it carries forward until there is passive income or the property is sold. Real estate professional status changes the answer and has strict hour requirements.
What happens to depreciation when I sell?
Depreciation allowed or allowable is recaptured and taxed on sale, at a rate of up to 25%. Never claiming it does not avoid the recapture, so the deduction is worth taking every year. We model the number before a sale so the tax is not a surprise at closing.
